But unlike some other AI plays, iFlytek shares haven’t been on fire. The stock is roughly flat to where it was a year ago. Many investors have been concerned about the company’s profitability after management guided for a 30%-to-70% profit decline in the first half of the year. But Wu expects earnings to reach an inflection point after the fourth quarter.

Management noted KPI would remain as technology progression (especially natural language processing [NLP]) and revenue growth (monetization of speech recognition). iFlytek has maintained a 43% revenue 5-year CAGR and 50%+ gross margin, but also consistently spent over 20% of revenue in sales & marketing and R&D. Management still expects intense investments on channels and high-potential scientist recruiting in 2017, but the cost growth will reach an inflection point after 4Q17.

iFlytek’s future revenue model will be based on charging customers for the amount of AI resource consumed.

In education, iFlytek will evaluate K12 students (mainly high school first) by monitoring everyday study behaviors and habits, and push tailor-made service to students & parents based on in-class ranking (by knowledge points) and exam patterns. Management noted near-term total addressable market will be Rmb20~30bn sales. (telecom operators generating similar revenue scale from providing a simple school-parent communication platform). In simultaneous translation, iFlytek will charge by usage, instead of just selling server and software. In healthcare, iFlytek will conduct retrospective review, collection and analysis of medical records, from tier-1 hospitals in China. This helper and reference system will be provided to low-tier and community hospital for improving diagnosis.

iFlytek shares, however, are by no means cheap at 61 times forward earnings.

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